Case Note & Summary
The dispute arose from recovery proceedings initiated by Punjab National Bank, successor of United Bank of India, against a charitable trust and its trustees for a term loan. United Bank of India had sanctioned a loan of ₹5 crore to the Trust on 27.06.2011 for construction of a college building, with the managing trustee and other trustees standing as guarantors. The loan account was classified as a non-performing asset on 30.06.2017, and the bank filed an original application before the Debts Recovery Tribunal, Cuttack, for recovery of outstanding dues of ₹75,56,680 as on 04.05.2018, comprising principal balance and interest. During pendency before the DRT, United Bank of India amalgamated with PNB on 01.04.2020, and PNB issued a certificate dated 24.12.2020 stating outstanding amount as ₹31,99,000 as on 13.10.2020 after payments totaling ₹93,31,842. The DRT, by judgment dated 05.02.2021, allowed recovery of only ₹1,83,268 with pendente lite and future simple interest at 10% per annum, after giving credit for payments made after NPA classification. PNB appealed to DRAT, which by order dated 01.09.2023 determined dues at ₹54,90,413 with pendente lite and future simple interest at 9% from 05.02.2018 till realization. The Trust and managing trustee filed a writ petition before Orissa High Court challenging the DRAT order. The High Court by order dated 11.01.2024 directed PNB to accept ₹29,55,678.02 in full and final settlement, relying on the certificate dated 24.12.2020 and deducting subsequent payments of ₹2,43,321.98, ignoring the interest component in suspense account. PNB's recall application was dismissed on 14.05.2024. The Supreme Court examined whether the High Court erred in ignoring the suspense account interest and whether such interest forms part of debt under Section 2(g) of Recovery of Debts and Bankruptcy Act, 1993. PNB argued that the certificate did not reflect suspense account interest and the Trust could not rely on it to claim reduced amount; the Trust argued for full settlement based on the certificate. The Court noted that Section 2(g) defines debt as any liability inclusive of interest, Section 19(20) empowers DRT to order interest till realization, and Section 21A of Banking Regulation Act bars reopening rate of interest as excessive. It observed that banks maintain interest in suspense account after NPA classification, and the certificate dated 24.12.2020 excluded that interest. Therefore, High Court's calculation was unsustainable. The Court also applied Central Bank of India v. Ravindra regarding interest capitalization and rejected Trust's self-serving statement of account. The Supreme Court allowed the appeals, set aside High Court orders, and restored DRAT's order. PNB was entitled to claim interest maintained in suspense account in addition to principal; DRAT's calculation of ₹54,90,413 with 9% interest from 05.02.2018 till realization was directed to be acted upon.
Headnote
A) Debt Recovery - Interest Component in Suspense Account - Part of Debt - Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Section 2(g) - Bank maintained separate suspense account for interest after classification of loan account as NPA, so interest component no longer reflected in loan account statement; Section 2(g) defines debt as any liability inclusive of interest claimed as due from any person by a bank; High Court erred by relying solely on certificate dated 24.12.2020 which did not include suspense account interest and accepted reduced amount. Held interest component in suspense account is part of debt due to PNB (Paras 10-12). B) Banking Regulation - Interest Rates - Prohibition on Reopening - Banking Regulation Act, 1949, Section 21A - Transaction between banking company and debtor shall not be reopened by any court on ground that rate of interest is excessive; PNB entitled to claim interest due calculated and maintained in separate suspense account in addition to outstanding principal loan amount. Held PNB's claim for interest in suspense account validated and DRAT's calculation acted upon (Paras 12,15). C) Debt Recovery - Pendente Lite and Future Interest - Tribunal's Power - Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Section 19(20) - DRT empowered to pass order for payment of interest from date amount found due up to realization or actual payment; DRAT determined dues as ₹54,90,413 with pendente lite and future simple interest @9% from 05.02.2018 till realization; High Court's different calculation unsustainable. Held DRAT's order dated 01.09.2023 restored and to be acted upon (Paras 7,8,15). D) Banking Law - Interest Capitalization and Statement of Account - Central Bank of India v. Ravindra, (2002) 1 SCC 367; Union of India v. Association of Unified Telecom Service Providers of India, (2020) 3 SCC 525 - Banks may charge interest on periodical rests and capitalize, subject to contract or established practice; statement of account must show details and particulars of debit entries; capitalized interest capable of being adjudged as principal sum on date of suit. Held principles applied to uphold PNB's entitlement to interest in suspense account; Trust's self-serving statement of account rejected (Paras 13-14).
Issue of Consideration
Whether High Court erred in directing full settlement at ₹29,55,678.02 by relying on certificate dated 24.12.2020 and ignoring interest component in suspense account; whether interest in suspense account is part of debt under Section 2(g) of Recovery of Debts and Bankruptcy Act, 1993.
Final Decision
The Supreme Court allowed the appeals, set aside the Orissa High Court orders dated 11.01.2024 and 14.05.2024, and restored the DRAT's order dated 01.09.2023. PNB was held entitled to claim interest due maintained in suspense account in addition to the outstanding principal loan amount. The DRAT's calculation of ₹54,90,413 with pendente lite and future simple interest at 9% per annum from 05.02.2018 till realization was directed to be acted upon.
Law Points
- Interest component in suspense account forms part of debt under Section 2(g) of Recovery of Debts and Bankruptcy Act
- 1993
- DRT empowered under Section 19(20) to order interest from date due till realization
- Section 21A of Banking Regulation Act
- 1949 bars reopening bank's rate of interest as excessive
- Banks must maintain suspense account for interest after NPA classification and such interest may be claimed
- High Court cannot ignore accounting system and rely solely on certificate that excludes suspense account interest
- DRAT's calculation accepted by bank is binding.
